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Definition of Spot

Spot Image 1

Spot

For immediate payment and delivery, as opposed to future payment and delivery.



Related Terms:

Devaluation A decrease in the spot price of the currency



Spot curve, spot yield curve

See Zero curve.


Spot exchange rates

Exchange rate on currency for immediate delivery. Related: forward exchange rate.


Spot futures parity theorem

Describes the theoretically correct relationship between spot and futures prices.
Violation of the parity relationship gives rise to arbitrage opportunities.


Spot interest rate

Interest rate fixed today on a loan that is made today. Related: forward interest rates.



Spot lending

The origination of mortgages by processing applications taken directly from prospective borrowers.


Spot markets

Related: cash markets


Spot Image 2

Spot month

The nearest delivery month on a futures contract.


Spot price

The current marketprice of the actual physical commodity. Also called cash price.


Spot rate

The theoretical yield on a zero-coupon Treasury security.


Spot rate

The current interest rate appropriate for discounting a cash flow of
some given maturity.


Spot rate curve

The graphical depiction of the relationship between the spot rates and maturity.


spot rate of exchange

Exchange rate for an immediate transaction.


Spot trade

The purchase and sale of a foreign currency, commodity, or other item for immediate delivery.


Theoretical spot rate curve

A curve derived from theoretical considerations as applied to the yields of
actually traded Treasury debt securities because there are no zero-coupon Treasury debt issues with a maturity
greater than one year. Like the yield curve, this is a graphical depiction of the term structure of interest rates.


Basket options

Packages that involve the exchange of more than two currencies against a base currency at
expiration. The basket option buyer purchases the right, but not the obligation, to receive designated
currencies in exchange for a base currency, either at the prevailing spot market rate or at a prearranged rate of
exchange. A basket option is generally used by multinational corporations with multicurrency cash flows
since it is generally cheaper to buy an option on a basket of currencies than to buy individual options on each
of the currencies that make up the basket.


Spot Image 3

Bootstrapping

A process of creating a theoretical spot rate curve , using one yield projection as the basis for
the yield of the next maturity.


Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument.
Related: derivative markets.



Cycle counting

The frequent, scheduled counting of a subset of all inventories,
with the intent of spotting inventory record inaccuracies, investigating root
causes, and correcting those problems.


Discount

The percentage amount at which bonds sell below their par value. Also the percentage amount at which a currency sells on the forward market below its current rate on the spot market.


Expectations hypothesis theories

Theories of the term structure of interest rates which include the pure
expectations theory, the liquidity theory of the term structure, and the preferred habitat theory. These theories
hold that each forward rate equals the expected future interest rate for the relevant period. These three theories
differ, however, on whether other factors also affect forward rates, and how.
Expectations theory of forward exchange rates A theory of foreign exchange rates that holds that the
expected future spot foreign exchange rate t periods in the future equals the current t-period forward exchange
rate.


expectations theory of exchange rates

Theory that expected spot exchange rate equals the forward rate.


Fair price

The equilibrium price for futures contracts. Also called the theoretical futures price, which equals
the spot price continuously compounded at the cost of carry rate for some time interval.


Forward differential

Annualized percentage difference between spot and forward rates.


Forward discount

A currency trades at a forward discount when its forward price is lower than its spot price.


Forward premium

A currency trades at a forward premium when its forward price is higher than its spot price.


Forward rate

A projection of future interest rates calculated from either the spot rates or the yield curve.


Interest rate parity theorem

Interest rate differential between two countries is equal to the difference
between the forward foreign exchange rate and the spot rate.



International Fisher effect

States that the interest rate differential between two countries should be an
unbiased predictor of the future change in the spot rate.


Normal backwardation theory

Holds that the futures price will be bid down to a level below the expected
spot price.


Option-adjusted spread (OAS)

1) The spread over an issuer's spot rate curve, developed as a measure of
the yield spread that can be used to convert dollar differences between theoretical value and market price.
2) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the
base yield spread of an MBS without an operative call produces the option-adjusted spread.


Philadelphia Stock Exchange (PHLX)

A securities exchange where American and European foreign
currency options on spot exchange rates are traded.


Premium

1) Amount paid for a bond above the par value.
2) The price of an option contract; also, in futures
trading, the amount the futures price exceeds the price of the spot commodity. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a
convertible security.


Swap rate

The difference between spot and forward rates expressed in points, e.g., $0.0001 per pound sterling.


Unbiased predictor

A theory that spot prices at some future date will be equal to today's forward rates.


Value date

In the market for Eurodollar deposits and foreign exchange, value date refers to the delivery date
of funds traded. Normally it is on spot transactions two days after a transaction is agreed upon and the future
date in the case of a forward foreign exchange trade.


VERTICAL ANALYSIS

A financial analysis technique that relates key amounts on the income statement and balance sheet to a 100 percent or base figure for the present and previous year.
It shows the percentage change from last year to this year, making it easier to spot problems that require analysis.


Zero curve, zero-coupon yield curve

A yield curve for zero-coupon bonds;
zero rates versus maturity dates. Since the maturity and duration (Macaulay
duration) are identical for zeros, the zero curve is a pure depiction of supply/
demand conditions for loanable funds across a continuum of durations and
maturities. Also known as spot curve or spot yield curve.



 

 

 

 

 

 

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